The argument that ESG harms profitability is “more than a myth—it’s misinformation that leads to poor business decision-making,” according to a new study released by IBM, which found that more than 70% of executives view ESG as a revenue enabler, and that consumers increasingly focus on companies’ sustainability performance when making purchasing and employment decisions.
For the new study, The ESG ultimatum: Profit or perish, IBM’s Institute for Business Value (IBV) analyzed results from a survey of more than 20,000 consumers about their attitudes toward sustainability and social responsibility, as well as a survey of 2,500 executives across 22 industries and 34 countries regarding their ESG strategy, approach, and operationalization, expected benefits and business objectives considerations. The study also segmented businesses according to ESG maturity to compare relative performance.
The executive survey indicated that ESG is a top priority for businesses, with 76% of respondents reporting that it is central to their business strategy, 72% approaching ESG as a revenue enabler rather than as a cost center, and 45% expecting ESG efforts to result in improved profitability.
The benefits of sustainability-related initiatives was particularly evident for the segment identified as “ESG leaders,” with these companies 52% more likely to report that ESG efforts have “a very great” impact on profitability, and also more often reporting ESG-related improvements in customer engagement (70% more often than low ESG maturity companies), risk management (90% more often), and access to finance (85% more often).
The study also found a strong sustainability focus among consumers, with around two-thirds of respondents reporting that environmental sustainability and social responsibility (68% and 65%, respectively) are very or extremely important to them, with these priorities already impacting employment and consumption decisions. More than 70% said that they would be more willing to apply for a job with a company that they consider environmentally sustainable or socially responsible, with over 40% willing to accept a lower salary to work for such a company – and a quarter of those who changed jobs in the past year reporting that they did so. Additionally, more than half reported paying a premium for environmentally sustainable or socially responsible products in the past year.
While ESG remains a priority for executives and consumers, both groups highlighted data-related challenges as a key obstacle to achieving sustainability-related goals. 41% of executives surveyed identified inadequate data as their organization’s biggest challenge to advancing its ESG agenda, followed by regulatory barriers at 39%. Similarly, only 41% of consumers reported having enough data to make environmentally sustainable purchasing decisions, and only 37% have enough data for employment decisions, and only a third said that they have sufficient ESG information to make sustainable investing decisions.
For businesses, the management of data represented the top obstacle to their ESG reporting and performance efforts, with 73% listing an overload of manual data as a challenge, followed by 70% reporting difficulty consolidating or manipulating data, 70% citing poor transparency in data calculations, and 69% reporting difficulty in mapping data across brands and geographies.
The report also highlighted a mismatch between business and consumer perceptions. While 74% of executives said that they believe that stakeholders understand their organizations’ ESG objectives and performance, only 20% of consumers reported that they trust company statements about environmental sustainability – marking a significant deterioration from 48% in 2021.
Jonathan Wright, Global Managing Partner Sustainability Services and Global Business Transformation, IBM Consulting, said:
“Consumer commitment to environmental sustainability and social responsibility has intensified with consumers voting with their wallets. As a majority of consumers choose to buy from and work for ESG leaders, businesses must prioritize transparency and break down barriers to ESG data.”
Click here to access the report.